Received an assessment that does not match the report you filed? At this stage, it is important to understand what the Israel Tax Authority is claiming, where the gaps are, and how to respond in an organized way, in order to improve your starting point at the very beginning of the process.
To understand what a best judgment assessment is, it is important first to understand the starting point: the self-assessment, as applied in Israel.
A person who is required to file an annual tax return sets out the data used to calculate the tax, including income, expenses, and taxable income. Based on this filing, the self-assessment is determined, meaning the tax liability as calculated according to the data provided by the taxpayer or the taxpayer’s representative. After the return is filed, the Israel Tax Authority issues an assessment notice reflecting the result of the calculation for the relevant tax year, including any balance payable or refund due. This is based on the difference between the tax determined and the amounts already paid during the year.
What Is a Best Judgment Assessment?
After the taxpayer files the return, the assessing officer may approve the self-assessment or reject it. Under Israeli tax law, the assessing officer may reject the self-assessment if the officer believes that the return filed does not correctly reflect the income or tax liability, if no return was filed at all, or if the data and documents provided do not allow the assessment to be approved as filed. In simple terms, instead of adopting the taxpayer’s calculation, the assessing officer determines an assessment on the authority’s behalf, based on an examination, documents, comparisons, estimates, and relevant external data. This is a best judgment assessment. The assessing officer may do so within three years from the end of the tax year in which the return was filed. After that, the self-assessment can no longer be changed by the Israel Tax Authority on the basis of the limitation period applicable in Israel.
When the assessing officer determines a best judgment assessment in Israel, the officer must state the reasons for the decision, specify the basis on which the calculation relies, and give the taxpayer a reasonable opportunity to present their arguments. Already at this stage, it is important to request access to the reasons for the assessment and to the materials on which the authority relied, in order to understand exactly where the dispute lies.
In practice, in Israel this type of assessment may be determined when the accounting records have been disqualified, when there are material inconsistencies in the filings, when supporting documents are missing, or when gaps are found between the reported information and external indications, such as bank deposits, invoices, supplier and customer data, or a standard of living that is inconsistent with the declared income. In such cases, the Israel Tax Authority builds an alternative picture of the economic activity and determines the tax base accordingly.
How Do You File an Objection to a Best Judgment Assessment?
If the taxpayer disputes the assessment, the taxpayer may file a written objection within 30 days from the date the assessment was served, setting out the arguments and reasons against the determination. This description relates only to the procedure in Israel. In many cases, this is the stage at which the real dispute with the Israel Tax Authority begins, because it is already clear what the authority did not accept. At this stage, the case can be reviewed, a factual, accounting, and legal basis can be built, and it can be examined whether the dispute can be narrowed at an early stage.
As a general rule in Israel, another official at the Israel Tax Authority reviews the objection. As part of the objection, the taxpayer must explain why the assessment is incorrect and present a factual and evidentiary basis supporting their position. In this context, the burden rests with the taxpayer to support the objection. It is therefore not enough to argue in general terms that the assessment is too high. To strengthen the objection, it is important to set out specific arguments and attach relevant documents, such as bank statements, invoices, agreements, accounting records, and correspondence. For example, if the assessing officer relied on an estimated turnover, it may be possible to challenge that estimate using documents and evidence that show the actual scope of activity.
Why Is It Important to Handle the Objection Properly from the Start?
Beyond the procedural aspect, it is important to manage the objection with a broader view. Partial or inaccurate handling at this stage may expand the dispute, lock in a problematic version of events, or miss arguments that should have been raised in time. When examining the assessing officer’s position, it is advisable to understand whether the dispute is mainly evidentiary, accounting, legal, or a combination of several issues, and to choose the appropriate course of action accordingly under Israeli law. Alongside managing the dispute, it is also important to examine practical options for reducing the exposure. In some cases, it may be possible to reach understandings regarding the amount of tax. If no agreement is reached, the assessing officer decides on the objection and issues an order, which may then be appealed.
If a decision has been issued on the objection and the taxpayer still believes that an injustice has been caused, the taxpayer may file an appeal with the District Court against the order issued by the assessing officer. This section refers only to appeal proceedings in Israel. This is an appeal that may be filed without obtaining special permission. The appeal must be filed with the District Court in the jurisdiction where the relevant assessing officer operates. A mistake in choosing the forum or in handling the procedural aspects may result in lost time, additional expenses, and unnecessary difficulty in managing the proceeding. Going to court also requires careful consideration. It is therefore advisable to examine the factual basis, the available evidence, and the broader implications of the proceeding, as it may open up additional disputes and affect other tax issues.
Nimrod Yaron & Co. has experience advising taxpayers, companies, and business owners in the fields of Israeli and international taxation, and in particular in dealing with assessments, objections, and tax appeals. Our team includes professionals with extensive experience in analyzing the Israel Tax Authority’s position, identifying the key points of dispute, and building an appropriate action strategy. If you have received a best judgment assessment, now is the time to examine what stands behind the determination, which arguments should be raised, and which documents should be prepared.
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Questions and Answers
How much time do you have to file an objection to a best judgment assessment in Israel?
In general, in Israel the objection must be filed within 30 days from the date the assessment was served. This is a short period of time, so it is advisable to review the assessment quickly, collect relevant documents, and begin formulating the arguments as early as possible.
Can all arguments in Israel be raised only at the appeal stage?
In Israel, it is recommended not to wait until the appeal stage. It is advisable to concentrate all arguments already at the objection stage, because an early and organized presentation of the arguments and documents may affect the outcome of the process and preserve as many options as possible later on.
Should every best judgment assessment in Israel immediately lead to an appeal?
In many cases in Israel, the objection stage is precisely the right place to narrow the dispute, present documents, address the assumptions on which the assessment was based, and try to improve the outcome before turning to the court.
When is it advisable in Israel to seek professional advice?
In general, in Israel it is advisable to seek professional advice early, as close as possible to receiving the assessment. At this stage, it is already possible to understand the Israel Tax Authority’s position, map the risks, collect important documents, and examine how best to draft the objection or prepare for the continuation of the process.
What is the difference in Israel between an objection and an appeal?
In Israel, an objection is a submission to the Israel Tax Authority itself requesting a change to the assessment, while an appeal is a proceeding before the District Court against the order issued after the objection. In most cases, it is advisable to invest significant effort already at the objection stage, because this is the first stage at which the full picture can be presented in an organized way.
Can an extension of time be requested in Israel for filing an objection?
In appropriate cases in Israel, it is possible to request an extension of time, but it is important to act quickly, explain the reason for the delay, and attach an appropriate basis for the request. It should not be assumed that the request will be accepted automatically, so it is preferable to prepare for filing within the original deadline as much as possible.
Which documents are important in Israel to attach to the objection?
In Israel, it is advisable to attach to the objection any document that can support your position, such as bank statements, invoices, agreements, accounting records, supporting documents for expenses, and relevant correspondence with the Israel Tax Authority. The clearer and better supported the factual picture is, the stronger the objection will be.
